FUNDAMENTAL OVERVIEW
The strong bullish momentum seems to have waned for the time being as we enter a potential pivotal month for gold. It’s not clear what caused yesterday’s drop as pretty much all markets went down at the same time. There were only talks of multiple US warships arriving in the Middle East but given that oil prices dropped too, I wouldn’t bet on that reason.
Overnight, we got reports that Trump was going to announce his Fed chair pick today and everything suggested that it was going to be Kevin Warsh. We got a hawkish reaction across markets as Warsh was a hawk during his last term at the Fed, although the historical stance is never a guarantee.
The narratives underpinning gold in the past several months have been the same, that is de-dollarisation, geopolitical tensions, and so on. Given the lack of bearish catalysts, the price continued to rise just by inertia. We reached a point where it looks like just FOMO rather than something fundamental because these prices are not justified in the short-term.
Since last week, I’ve been turning more bearish in the short-term as I feel like we are reaching an inflection point and February could be the first major negative month for precious metals if the right conditions fall in place.
The most important catalyst next week could be the US NFP report. We’ve been seeing improvements in the US Jobless Claims data that seem to suggest a pickup in labour market activity. A strong report would trigger a hawkish repricing in interest rate expectations and put pressure on gold.
The other top tier data could also start to weigh on gold if they come out strong, but the NFP report should be the main event of the week. In case we don’t get the bearish catalysts, gold could keep on rising just by inertia.
GOLD TECHNICAL ANALYSIS – DAILY TIMEFRAME
On the daily chart, we can see gold sold off back to the upper bound of the channel which is now acting as support. This is where we can expect the buyers to step in with a defined risk below the trendline to position for a rally into new record highs. The sellers, on the other hand, will want to see the price breaking lower to pile in for a drop into the bottom trendline around the 4600 level next.
GOLD TECHNICAL ANALYSIS – 4 HOUR TIMEFRAME
On the 4 hour chart, we can see more clearly the rejections at the upper bound of the channel as the dip-buyers started to step in. There’s not much we can add here as the buyers will continue to pile in to target new highs, while the sellers will look for a break lower to extend the drop into the next trendline around the 4800 level.
GOLD TECHNICAL ANALYSIS – 1 HOUR TIMEFRAME
On the 1 hour chart, we can see that we have a minor downward trendline that could define a potential future triangle as the price consolidates here. If the price gets there, we can expect the sellers to lean on the trendline with a defined risk above the trendline to keep pushing into new lows, while the buyers will look for a break higher to increase the bullish bets into new record highs. The red lines define the average daily range for today.
UPCOMING CATALYSTS
Today we conclude the week with the US PPI report and Trump’s announcement of his Fed chair pick.
